Experts advise investing in China to align with economic growth trends

Robert Penaloza, CEO of asset manager Abrdn Thailand, said China is captivating the focus of global investors in a world where economies are evolving at an unprecedented pace.

China has 1.4 billion people, 4.7 million of whom graduate from university every year, he said, adding that China’s economy now leads the world in agriculture and renewable energy.

"China is investing over US$1.4 trillion in new technologies, particularly in artificial intelligence," he said.

As a result, the China A-share market is a tidal wave of opportunities that could trigger the investment shift of a lifetime, Penaloza said.

The China A-share market consists of companies listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange. Ninety percent of investors are retail investors, while only 10% are foreigners.

The China A-share market trades in Chinese Yuan and differs from its B-share counterpart, which uses foreign currency and offers stocks that are more widely available to foreign investors.

Penazola also advised investors to take an active stance in Chinese investing instead of relying on benchmark returns. He recommended applying ESG (environmental, social, and governance) and sustainability principles in stock selection.

China's economy is recovering

Assoc Prof Aksornsri Phanishsarn, a China economy expert at Thammasat University's Faculty of Economics, said China's economy has emerged from crisis but is still in recovery mode and may take time to return to 100%.

She also cited reasons to feel confident about the Chinese government’s economic management. Among them was that China’s economy would be driven by the progressive and nationalistic new generation known as “Generation Xi”.

"China’s government right now is trying everything in its monetary policy to encourage Chinese people to spend money and keep the economy moving forward," she said.

China is also focusing on the data-driven economy and domestic manufacturing rather than imports to relieve dependence on foreign countries, she added.

However, she also cautioned that geopolitical issues posed challenges for China's economy, citing the US-China trade war and tensions over Taiwan's independence.

Taking back Taiwan as a Chinese territory is a major goal of Xi Jinping's government, she said.

Chinese economy to grow on three factors

Nicholas Yeo, head of Abrdn group's equities team in China, said the Chinese stock market is expected to gain positive sentiment from three factors: the economic cycle, innovation investments, and cheap stock prices.

The economic cycle has enabled the Chinese government to stimulate the economy by loosening monetary policies while keeping inflation under control, he explained.

He said Chinese stock prices have dropped by 12% from 15 years ago, but the economy is now in recovery after the zero-Covid policy was scrapped.

He said investors are now shifting their attention away from fundamentals and towards trends as they believe the global economy will recover in the second half of this year.

For instance, artificial intelligence (AI) firms are expected to perform better than solar panel companies, he said.

The Chinese government is making long-term investments in innovation, technology, renewable energy, and ESG-driven business to become more self-sufficient, he added.

"Due mainly to geopolitics, China needs to speed up its self-sufficiency in technology, healthcare and domestic consumption," he said.

Yeo compared the Chinese economy to "Whac-A-Mole", explaining that as people invest in one or two trends, more trends will pop up as investor confidence is restored.

He advised investors to focus on the Chinese government's long-term development plans to become a "moderately developed" economy by 2035.

"Do not go passive, and be disciplined in picking up stocks of high-quality companies with high ESG standards to protect investment and generate long-term performance," he said.